Airbus and Boeing Co (NYSE:BA) have dominated the market for large passenger jets for so long that investors may have gotten complacent. Few things are more difficult than building a Boeing 747 or an Airbus A380. It’s a very capital-intensive industry, and few firms have the scale to compete with Boeing and Airbus.

High entry barriers make it difficult to break the Boeing-Airbus duopoly. Boeing and Airbus must spend billions on fixed costs, such as R&D, for years before they even sell a single passenger jet, so just breaking even can be difficult. Earning a profit is even harder. Boeing’s competitor, Airbus, is partially owned by European governments, whom Boeing has accused of subsidizing Airbus for years.

But, difficult does not mean impossible, especially when China is involved. China is projected to become the world’s largest market for aviation by 2024, and Boeing estimated that Chinese airlines would spend $1 trillion on planes by 2035.

In China, the state-owned Commercial Aircraft Corporation of China (COMAC) has the home-court advantage, and this could pose a threat to Boeing and Airbus. COMAC produces a twin-engine regional jet, the ARJ21, which first flew in 2008. The ARJ21 began service with Chengdu Airlines last year.

Admittedly, COMAC owns shares in Chengdu Airlines, so this may not be too impressive. In 2016, Reuters reported that COMAC received 350 orders, again mostly from Chinese firms.

But, COMAC has further plans. The COMAC C919 completed its first flight earlier this month. The C919 is a medium-range passenger jet that seats about 150 and competes with the Boeing 737 and the Airbus A320. COMAC also plans to build the C929, which seats 250 to 280 and could challenge the Airbus A330 and Boeing 787.  

Enter Bombardier

COMAC wants to buy into Boeing’s rival, the Canadian conglomerate Bombardier Inc (OTCMKTS:BDRBF), which builds trains and jet aircraft.

Bombardier’s rivalry with Boeing appears to be heating up; the two are in the midst of a bitter dispute. Boeing accused Bombardier in April of selling airplanes below cost, a practice known as “dumping.” In response, Canada’s government threatened to buy fewer fighter jets from Boeing. According to sources, Boeing is worried about losing the sale and is trying to mollify the Canadian government.

The relationship between Bombardier and COMAC goes back a few years. The two inked a Strategic Agreement in 2011, agreeing to coordinate development of Bombardier’s CSeries with COMAC’s C919. The Bombardier CS100 can carry 108 passengers and the CS300 carries 130. Like the C919, they compete with the Boeing 737.

But, COMAC and Bombardier don’t see each other as rivals, calling their product offerings “complementary.” They signed more agreements in 2012 and 2013, cooperating on things such as electrical systems.

Still, some say the C919 is based on older technology, which could put it at a disadvantage with Boeing and Airbus.

But now, COMAC is in talks with Bombardier to invest in its C-Series, which could give COMAC access to Bombardier’s newer technology. With Bombardier’s technology and the financial backing of the Chinese government, COMAC could pose a challenge to the Boeing-Airbus duopoly.

Impact on Boeing Stock

COMAC’s position in China gives it an advantage over Boeing and Airbus. Although many of China’s largest airlines, including China Eastern Airlines Corp. Ltd. (ADR) (NYSE:CEA) and China Southern Airlines Co Ltd (ADR) (NYSE:ZNH), trade on the New York Stock Exchange, the Chinese government controls them. So, for example, the Chinese government could direct them to favor COMAC’s planes over Boeing’s, especially in the event of a trade war between China and the United States. Aviation is one of the few industries where the United States runs a trade surplus.

Further, if China becomes the world’s largest market for planes, COMAC could put a dent in Boeing’s sales even if it doesn’t sell a single plane outside of China. One analyst estimated that the C919 could cause Boeing and Airbus to lose up to $223 billion in sales. A more conservative estimate put the loss at under $100 billion.

Although some might not associate Chinese manufacturing with product safety and quality, let alone something as complex as passenger jets, China has succeeded in similar areas. For instance, China forced foreign companies wishing to sell trains in China to transfer their technology, which it used to build a domestic high-speed rail industry. Now, China is building high-speed rail projects in countries like Turkey and Indonesia and competing with these companies.

Also, COMAC probably won’t have to worry much about profitability. The Chinese government may have other, non-financial reasons for wanting to make their own long-range passenger jets. Building increasingly sophisticated aircraft like the C919 gives China’s aviation industry the skills needed to make things like a long-range strategic bomber.

Impact on Other Stocks

State-owned COMAC might decide to prioritize volume or market share instead of profits, meaning that more planes would get built than would otherwise be the case. Lower-cost Chinese production could push down prices, just like Chinese manufacturing did with electronics. When something gets cheaper, people tend to buy more of it; if passenger jets get cheaper, airlines might order more of them.

And, if more airplanes get built, this means greater demand for inputs such as engines and wheels from COMAC’s foreign suppliers. Honeywell International Inc. (NYSE:HON) supplies the auxiliary power system, navigation, flight control, wheels and brakes for the C919. Other suppliers include General Electric Company (NYSE:GE) and its GE Aviation unit, which provides advanced systems, and Rockwell Collins (NYSE:COL), which supplies avionics.

More competition among aircraft manufacturers would benefit suppliers and airlines, but could harm Boeing and Airbus, which might see lower profits.

As of this writing, Lucas Hahn did not hold a position in any of the aforementioned securities.